This thesis explores the creation and setup of a prototype that allows users of the device to interact within an indoor real world environment and a virtual environment simultaneously using high-tech common technology. The prototype is comprised of a small mobile device such as a cellular mobile phone, Raspberry Pi computer, a battery powered handheld Pico projector, and software developed for the Android OS. The software can easily be ported to other mobile and non-mobile operating systems. The mobile device must contain accelerometer, magnetometer, and gyroscope embedded sensors as well as 802.11 wireless network chip. The prototype software implements an indoor positioning system to track the current location and orientation of the prototype device in real time. It also displays a virtual world projection upon the surfaces of the real world in relation to the prototype’s physical location and orientation. Three different orientation estimation methods were tested and compared in this thesis. Accelerometer and magnetometer based method, gyroscope based method, and a combined method using a technique called sensor fusion were implemented. A multilateration approach was used for location estimation. Location estimates were calculated from the measured received signal strength of multiple 802.11 wireless network access points. The location of all wireless access points were known and fixed. Received signal strength data was converted to meters using a log distance propagation model, and tests were conducted to compare actual distance with converted distance. Tests were also conducted to compare multilateration estimates from unfiltered or raw RSS and filtered RSS data using a Kalman filter.